Trader tries to strike gold with million-dollar bet on miners

The gold miners have been on one heck of a run over the past two weeks, with the Market Vectors Gold Miners ETF(ticker symbol: GDX)rising more than 20 percent from its close on Wednesday, Nov. 5 to its open on Wednesday, Nov. 19. And one big trader thinks the rally is just beginning.

On Tuesday, one firm executed a complex, multimillion-dollar trade that will profit if the GDX is between $21.25 and $26 at the beginning of 2016. That area is 8 percent to 32 percent above where the ETF was trading when the trade was put on, but that's not an outlandish move considering how volatile mining stocks have been. In fact, the GDX was trading above $26 just over two months ago, in the beginning of September. Since then, the mining stocks have been punished by continued weakness in gold prices.

The specifics of this trade shed a bit more light on the trader's thesis. The trader bought 39,000 January 2016 20/26 call spreads for $1.75 per share or $6.6 million in total, and financed that trade by selling 13,000 January 2016 13-strike puts for $0.8 million and 26,000 January 2016 12-strike puts for $1.3 million.

If the GDX is still between $13 and $21.25 come January 2016, then the trader will lose the $4.5 million they paid. The trader's maximum profit is $19 million, and that is enjoyed if the GDX rises to or above $26. In the unlikely scenario that the GDX falls below $13, the trader will be obligated to buy the GDX at that level, and buy more at $12 if it falls below there. (This means that the trade technically risks $52.5 million dollars, as the trader will see additional losses of $48 million if the GDX falls to 0.)

So why do all this fancy footwork? Dan Nathan of RiskReversal.com points out that as the GDX has fallen, options prices have spiked. This makes selling options a more attractive strategy than buying them, he said.

"Really what they're trying to do is set up a bullish trade, but get some leverage and take advantage of the heightened implied volatility," Nathan said Tuesday on CNBC's "Fast Money." "This trade looks like a great set-up in a very short period of time—although it is looking out more than a year from now."

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